The Most Important Part of Today's Health Care Ruling You Haven't Heard About

Although it has largely been treated as a footnote in today's coverage of the Supreme Court's health care ruling, the Justices' decision to strike down part of Obamacare's Medicaid expansion might itself be a turning point in constitutional law -- one that could put significant new limits on federal power.

In order make insurance available for more low-income Americans, the Affordable Care Act essentially made states an offer they couldn't refuse. They could either accept more money to expand their Medicaid rolls, or lose their existing federal funding for the program. Congress puts conditions on federal dollars all the time. It made states raise the drinking age to 21, for instance. But in this case, the court ruled that Congress' threat to yank away all of a state's Medicaid funding unless they cooperated was unconstitutionally coercive.

And according to University of Michigan law professor Samuel Bagenstos, that's a very big deal. Bagenstos, who filed an amicus brief before the court arguing in favor of the Medicaid expansion, says today's ruling could open up all sorts of federal programs that rely on state cooperation to new legal challenges. The transcription of our conversation below has been edited lightly for length and clarity.

I'd love to hear your opinion on what this means, not only for Medicaid, but for this broad swath of federal programs that use incentives to get cooperation from the states.

My initial reaction is it probably isn't going to mean a whole lot for the Medicaid expansion in the Affordable Care Act, because the Medicaid expansion is such a good deal for the states. You'll probably hear a lot of complaining about it, and then quiet acceptance by the complaining states.

The $64,000 question as to Medicaid is how many states are going to decide that they don't want to cover this expanded population, even with the very substantial financial incentive.

I think the bigger concern is for other cooperative federal spending programs. This is the first time the Supreme Court has ever invalidated a condition on federal spending on the grounds that it coerced the states. That's a big deal. That's a really big deal. The court has a couple times in the past suggested that there might possibly be a condition that's coercive. But it's never found something coercive until now.

The grounds on which they found this Medicaid expansion to be coercive are not entirely easy to figure out. But they are problematic for other federal spending laws, for other cooperative federal programs. I could foresee, and I do foresee, that there will be a number of challenges over the next months and years to a number of cooperative federal spending programs, like the Elementary and Secondary Education Act, particularly depending on what changes ultimately get made to No Child Left Behind and what kind of regulations get imposed on states for federal education funds. I think there could be challenges to the Individuals with Disabilities Education Act. There could be challenges to the civil rights statutes that impose conditions on the states that accept federal funds, like the Rehabilitation Act, which prohibits disabilities discrimination. So there are lots of possibilities that are opened up by this ruling to challenge well-entrenched cooperative federal spending programs. Those opportunities didn't exist before today because the court had never a condition on federal spending coercive to the states.

If this part of the ruling were its own separate decision, it would be a landmark case in the history of federalism jurisprudence. Or that's how it seemed to me. Do you agree?

So it is a fractured opinion, there is no majority opinion on the question. So we don't know exactly how much of a watershed this will be. But yes, I will say that if the Medicaid issue were not in the same case as the individual mandate, people would be talking today about what looks like a very significant decision to potentially significantly limit federal conditional spending power, absolutely.

We still have to work out exactly what it means. But it is seven justices who voted to conclude that Congress has coerced the states by threatening to take away Medicaid funds from states that don't want to expand Medicaid.

When before has the court said it could theoretically put limits on the federal government's ability to make states do certain things, like expand Medicaid?

[There was a case] from the 30s called Steward Machine, which was a case involving the constitutionality of the Social Security Act. One of the challenges to the Social Security Act and the unemployment compensation it set up was that it coerced the states into participating. And the court rejected that claim. The court said, basically, we could imagine a situation in which the pressure imposed by Congress is so great as to turn into compulsion, but usually we think that states can take care of the themselves. States have the power to tax. States have the sovereign ability to decide whether to participate in these programs. And that's the premise that we usually follow.

The second time the court considered this issue was a case in the 1980s, South Dakota vs. Dole, involving Congress' decision to attach a requirement to federal highway funds that states raise their drinking age to 21. And the court there said, again, we might imagine some situation which is coercive, but this isn't it.

That was a case where Congress was only taking away a little bit of money from states that didn't want to agree to the conditions. Here, there's a great deal more money at stake. So it was not an off-the-wall sort of argument for the states to make here. Medicaid is the biggest expenditure of most states. It accounts for an average of a little more than twenty-one percent of states' budgets. Federal matching accounts for an average of a little more than 11 percent of state budgets, so this is a big deal for the states if they were to lose their ability to participate in the federal Medicaid program. That might make this a sort of unusual case.

But the principles articulated by the court suggest that there might well be other cases in which Congress is coercing states by attaching conditions to federal funds. Again, since the court has never held that before, it's a big deal. If you look over the last twenty-plus years since South Dakota vs. Dole, in the lower courts, a number of federal statutes have been challenged as coercing states by imposing conditions on federal funds. And the lower courts have basically uniformly rejected those claims largely on the grounds that although the court has suggested there might be some circumstances where the states could be coerced, the court had never found the states to be coerced. But now that talking point is gone. That argument is gone.

So now we're entering the period of unknowns. We're going to have to feel it out.

Right. I think that's right. I don't think you can say, boy the sky is falling on federal power today. I think that this opinion is very significant because it opens the door to challenging a bunch of very significant federal statutes that had not really been subject to effective challenge before. The courts will have to work out what those challenges will result in. And I predict that you will have a lot of litigation over months and years with respect to a number of statutes to work that out.